Posted
by
Soulskill
on Tuesday February 22, 2011 @08:13AM
from the bunch-of-bull dept.

An article at the Guardian asks whether the exceedingly high valuations of social tech companies signify the arrival of a second dotcom bubble. Quoting:
"Every week, one of the new generation of internet firms seems to attract a sky-high valuation. Zynga, the social-network games company that has tempted millions to grow virtual vegetables in its FarmVille game, has been valued at $9bn (£5.54bn). Profitless Twitter is said to be worth $10bn. Groupon, vendor of online discounts, rejected a $6bn offer from Google and is considering a flotation with a potential valuation of $15bn. Tech-watchers say this is just the start: the real boom will come when Facebook, the head boy of the new dotcom frenzy, goes public, probably next year. ... The last dotcom boom really took off after the flotation of the internet software company Netscape in 1995. Patrick says this time it's likely to be Facebook that lights the fuse. So far, private investors have been locked out of the New Thing. But JP Morgan is setting up a fund, and Goldman Sachs recently tried to get its clients' money into Facebook."

The problems that monetizing free services like Facebook are largely as follows.

-The value of the product to users is determined by the number of your friends that use it. It's value to consumers massively diminishes if large swathes of your friends dont use it. Its the same reason I don't use MSN messenger anymore. That's actually a really great product, but I don't know anyone else who uses it, and that pushes its value to 0. What this effectively means is that Facebook cannot charge users for content. As soon as they do that, some people will leave, which pushes down the value for money that users who want to stay get. So they leave too. No future there.

-So if they can't charge, how do they generate income? As we know, its largely advertising revenue. That's true of Google, and Facebook, and any aspiring free products out there. The success of that model is difficult to predict. On the one hand, the amount of information about users that these companies can get is astronomical. It is certainly of use to advertisers, and they are probably willing to pay huge sums so that they can integrate that data into their systems for personalized adverts. On the other hand, I've yet to see personalized advertising systems which is accurate enough to be of value. I've never clicked any Google or Facebook ads because they have never hit anything that I would want. Until that gets addressed, there's not a huge future in that either.

-So if they can't charge, how do they generate income? As we know, its largely advertising revenue

And that brings up problem #2 that the last bubble happened in an inflationary flood of credit and generally increasing (at least nominally) incomes. In a deflationary environment, you can't grab a slice of the pie and watch it grow, even just to stand still you have to convince your customers (advertising agencies, etc) whom have a shrinking revenue stream, that their dollars are better spent on your dotcom ads than spent on TV commercials, print ads, billboards, whatever.

Every millisecond spent on facebook is a millisecond not spent at home depot or related pursuits, not spent eating at a restaurant, not spent buying a car or driving around... Computer product importers / retailers and ISPs are pretty much the only industries that are a good fit for facebook.

You want to reach car buyers so you can sell more cars, you put a billboard on the biggest interstate in town, you advertise on TV during nascar races, and you put print ads in a car magazine. You don't advertise to peasant subsistence farmers, real or virtual farmvillers. The real ones can't afford it, and the virtual ones are more interested in clicking mice than driving cars. Facebook, etc, is too old and too wide spread to dazzle them into investing in something "new", since everyone's had an account for years.

In other words its hard to bubble off shrinking advertising revenue that would be targeted to the wrong people anyway.

Every millisecond spent on facebook is a millisecond not spent at home depot or related pursuits, not spent eating at a restaurant, not spent buying a car or driving around... Computer product importers / retailers and ISPs are pretty much the only industries that are a good fit for facebook.

You want to reach car buyers so you can sell more cars, you put a billboard on the biggest interstate in town, you advertise on TV during nascar races, and you put print ads in a car magazine. You don't advertise to peasant subsistence farmers, real or virtual farmvillers. The real ones can't afford it, and the virtual ones are more interested in clicking mice than driving cars.

You mean you don't reach the small subset of car buyers who are interested in just "driving around" as a form of recreation, rather than simply as a mode of transportation. People playing Farmville still have jobs, need to go to the grocery store, and do everything else that is the only reason most people buy a car.

So you don't advertise Porsche, Ferrari, BMW, etc in Farmville. You advertise Toyota, Honda, Chevy Malibu, and other practical cars. Heck, you can even still advertise BMW to get those who ar

Status update "buying new lamps!!!!" with a gps tag that puts you in home depot

Ahh see thats the problem. So Lowes could poach customers out of Home Depot or whatever. Great. The problem is most people use modal thinking.

A dude who is into cars cars cars and more cars used to read car and driver and think about buying a ford mustang all the time, at least when he's not thinking about a Ferrari... now he burns his spare cycles thinking about playing mafia wars more effectively. Which makes ford more revenue, feeding the fires of the car fanatic via some flashy ads or complimentary

-So if they can't charge, how do they generate income? As we know, its largely advertising revenue.

They could sell the aggregated data to every HR department in the world, every government at every level in the world, every private investigator / bail bondsman in the world, all the worlds credit bureaus, every private security firm in the world... Eventually as the bubble pops, they will HAVE to do so as they circle the drain.

Facebook's valuation is a real mystery to me. It's valued at $50 billion. It has 500 million users, which looks like a lot, but that puts it's worth at $100 per user. Do you think you are worth $100 to facebook? Do you know anyone who might be?

The value of a company is generally about 10 times its profit, so facebook should be making $5 billion profit a year, or $10 per user. And that should be profit, not revenue.

$50 billion is also about a third or a quarter of what really big companies like Google, Oracle, Apple and Microsoft are worth. Is facebook really that close to that league? I think anyone buying facebook stock at this price is insane.

This is exactly what I'm worried about when talking about the next bubble. For years, the value of a company was a basis of the profit ratio. In the previous bubble, the companies involved had no profit and the new measure of "revenue ratio" was created... that was the big sign of trouble and we're getting there again aren't we...

Facebook's valuation is a real mystery to me. It's valued at $50 billion. It has 500 million users, which looks like a lot, but that puts it's worth at $100 per user. Do you think you are worth $100 to facebook?

Not personally, because my account is practically a zombie. But on the other hand I know many people that I think are worth far more, that spend lots of time there watching targetted ads. If you don't think that's good business, you must have missed Google.

Facebook got a ton of metainformation about you from say social groups. Ads for sports equipment to sports club members? Oh yes. Fan of Oprah? Oh look, an ad for a book she just commented about. All that matters is how closely they can match you up withou

I've never clicked any Google or Facebook ads because they have never hit anything that I would want. Until that gets addressed, there's not a huge future in that either.

I've clicked on far more Google ads in Gmail (ie. maybe half a dozen times) than I've clicked on random non-targeted banner ads (I think once, ever, on purpose, plus a few mis-clicks which I closed immediately). There's a perception (not in your post, just in general) that advertising is always a bad thing. I actually LIKE well-targeted ads, because they connect me with a company which provides goods or services for which I have a need, and thus they save me time and

On the other hand, I've yet to see personalized advertising systems which is accurate enough to be of value. I've never clicked any Google or Facebook ads because they have never hit anything that I would want. Until that gets addressed, there's not a huge future in that either.

Hi. This is purely anecdote, so it will be natural if you take this with a grain of salt. In the last couple of months I've been seeing an improvement in the type of advertisements I see (read get) with Facebook. I've not stated in Facebook any interests in training for embedded systems and FPGA stuff and crap (rather, I've done it in other forums, blogs and in StackOverflow.) And yet, I've been getting advertisement for equipment and training that is right up my alley, things that sometimes I never find ev

Google is exceptionally good at balancing customer value with non-intrusive ads, very high moral fibers and overall being a bunch of really nice people. They understand their business model and manages to keep greedy bastards from running the show. As soon as someone like Elop gets the helm of Google its game over in matter of months.

Facebook will have to be very slick and discrete when they start moving ads or some other form of revenue. With millions upon millions of investors screaming for blood, thats n

High moral fibers? That's a dubious claim. Your thought of "really nice people" that somehow managed to keep (possibly other) greedy bastards from running the show is mischaracterized. They merely provide somewhat astute competition at the cost of your privacy, and therefore, your dignity.

Proliferating web content through subsidized advertising is much like how the TV industry let the ad sales people out of their cages, resulting in a proliferation of enormous quantities of total content blather. That evolu

I wouldn't compare facebook and similar to TV with advertisements. In TV the content providers get paid for good content (from someone's point of view anyway), in facebook the content providers just loose time...

Facebook hasn't mined their data sufficiently to give really targeted ads. Google has indeed done this. My experiments say that they know lots about you, ranging from your sexual orientation and marital status to your travel and purchasing propensities. Facebook is just getting started. The ads you see on FB are much more random than Google's.

Try creating an alternate ego and personna on a fresh browser install, like a new instance of Chrome or FireFox or Opera. Be gay if your straight, or straight if you'r

And how do you know this? There are a dozen search engines, and you really have no idea how much data Google stores, then makes available to sites. Google Analytics, while vastly resourceful, gets that way at the cost of immense amounts of YOUR data.

You give lots away and don't realize it. The Google model is built on robbing you of your privacy. You blithely ignore this, ready to get nibbles of content in sacrifice for the dignity that your privacy gives you.

Your trust is misplaced, in my estimation. You trade your data-- personal data, private data-- and your dignity and for what? Free prattle, Google-sponsored ads. Feel better about that? You use gmail, and expect that they'll stay out of your mail boxes, your contact list, your chats, your docs? I have a bridge for you in Brooklyn.

I, too, am worried about governmental data vacuuming. That's what encryption is for. There's an old aphorism that says that locks keep your friends out, but your enemies have pick

Tracking has. Gathering and storing as much data as possible about you has. Driving around to get your wifi data has. If google is nice when it comes to privacy, the Ethiopian princess that asks for my bank account data is real.

They currently have real value, but as Smidge was pointing out, this "value" is highly volatile. Google provides a variety of services that aren't that easy to duplicate.. but the content on Facebook is all user generated. Pretty much any web developer could make a social networking site. He may have to hire staff to help him scale up the back end to handle hundreds of thousands of users, but overall it's nothing particularly special in the technical dept. Twitter is probably best positioned to take it down

These companies have real value - Google's a huge company with a market cap of $202 billion as of this morning's opening.

Thats hilarious placing "real value" and "market cap" in the same line. Market cap is nearly meaningless, its just the marginal price fluctuations times the number of outstanding shares. As if, in a thought experiment, you sold every outstanding share you'd be able to get the exact same price for the last share sold as for the first share sold, ha ha ha.

The actual real value of GOOG can be found at (where else?) finance.google.com, pull up GOOGs financials, click on balance sheet:

total assets 57851 - virtual made up junk slush fund accounting tricks like intangibles and goodwill -6256 -1044, subtract total liabilties 11610 and GOOG is really worth about 39 billion as of the end of last year.

Market cap is nearly meaningless, its just the marginal price fluctuations times the number of outstanding shares. As if, in a thought experiment, you sold every outstanding share you'd be able to get the exact same price for the last share sold as for the first share sold, ha ha ha.

As another thought experiment, imagine you *bought* every outstanding share. You'd have to pay far more for the last share than for the first one.

So from a seller's perspective, market cap overstates the value, and from a buyer's perspective, it understates the value. It's a pretty good metric, as most corporate acquisitions are a small amount over market cap: perhaps a 15% to 40% premium.

This is nonsense (or at best an utterly pessimistic view on the value of Google). Let us assume that you currently possess $50 worth of tangible assets. Suppose I signed a contract with you saying that I had to give you $100 for your work on zoology 1 year from today. How much should someone be willing to pay you right now for all to all of your money for time immemorial? Assuming I am perfectly credit worthy, someone should give you ~$150 (actually slightly less accounting for inflation reducing the value

The actual real value of GOOG can be found at (where else?) finance.google.com, pull up GOOGs financials, click on balance sheet:

total assets 57851 - virtual made up junk slush fund accounting tricks like intangibles and goodwill -6256 -1044, subtract total liabilties 11610 and GOOG is really worth about 39 billion as of the end of last year.

This is called "book value". And it's not the company's "real value" (if there is such a thing), because it fails to value the company as a company. Obligatory car an

The balance sheet value is meaningless for valuation. It doesn't even tell you what I'm guessing you think it means, since the balance sheet uses going concern values, not what you'd get for putting the assets on ebay.

Market cap is by far the best valuation. Maybe you think it's overpriced, maybe you think it's underpriced, but the market as a whole thinks this is the right price - by definition in $$$ terms something is worth what it's purchaser will pay for it and that's the market price. It's not relevan

During last dotcom boom companies had no usable plan to get income. However, Facebook is advertisers dream with its extremely targeted advertising system, Zynga has a huge amount of casual players and both advertising and direct payment system and groupon receives good money from the stores. They all have business plan. They might have to work on them a little bit as they're still so new companies, but they definitely have one that work.

That's why it's not a second dotcom bubble - it's just that the masses have started using internet a lot more than before and web itself has changed.

What would be interesting is to see if some investment can be directed toward funding open source. It's more than fair, a huge amount of these operations depend on open source. I favor setting up threshold pledge funds -- http://en.wikipedia.org/wiki/Threshold_pledge_system [wikipedia.org]

You know, houses are valuable possessions too, just like the various commodities that've made messy bubbles before. Any sectors of stock, bonds, commodities, or higher order derivatives can reach bubble proportions.

You realise that they are knocking houses down because the supply of them is such that they are worth less than the loans which were taken out to build them.

Let me say that again, to emphasise the insanity. They are knocking houses down.

Despite all the poverty and homelessness, despite the trailer parks. Because for capitalism to function, supply must never meet demand. It is only by destroying perfectly good housing that the supply can be reduced, the remaining stock can be made more valuable and people can go back to their wage slavery in order to pay the mortgage.

It's happening in and around Detroit especially, but all over the country too. Google [lmgtfy.com] is your friend you lazy wanker. Three of the top five results from that properly constructed query relate to the subject at hand. Learn2Search.

Not necessarily "perfectly good". A structurally sound house in the wrong place is not perfect and not really good. In a way, this mirrors the soviet failure, rather than capitalist problems. The soviets assumed that if a factory was working at full speed producing whatever had been specified, it was doing good work. But producing obsolete or excessive goods is a net loss. If you could move houses from the rustbelt to the sunbelt, your observation might be true. But you cannot, and it is better to scale back the shrinking communities to a functional size than continue to mimic a city with four times the population.

(Or you can try to relocate jobs to where the houses are. if you succeed in that, your fortune is made, just on the lecture circuit).

Socialism is dead, and capitalism is the walking dead. For capitalism to function, more stuff must be continually made and sold. It doesn't really matter what the stuff is, but stuff has to be sold constantly, in large amounts, consuming work/jobs, material, transport, put the whole socity to make stuff. Nobody cares what the stuff is. That's only possible if the stuff doesn't last very long. If everyone produces garbage, stores garbage, transports garbage, advertises garbage, buys garbage, and makes mon

My coworker and I had this convo a few weeks back. Of course, we've witnessed the demise of centrally-planned economies in the last 100 years, as they're unable to determine the optimal setup of manufacture and distribution of goods and services, resulting in shortages or overproduction. However, does the proliferation of information technology change this?

In many industries, the only remaining competitive advantage is to optimize process through the use of IT, as opposed to making a product better or cheap

And that is why, everywhere that Walmart opens a store, there are no more local stores. There are only Walmart, Target, Home Depot, Lowes, and Best Buy...oh wait, no there isn't. There are lots of little shops that supply needs/wants that Walmart and the other big box stores don't. Those little stores represent the things that would fall through the cracks with central planning.

They're not all that valuable, they're an investment. My house I just bought for 1/5th the cost to build a new one. Gutting it would cost me more than what's in it as regards to copper, wood and stone. I pay about as much in mortgage, taxes and insurance than the average rent around here. It's an investment for the time I either stop paying mortgage or sell it again. The housing market is murderous around here with houses going within days of being on the market and usually fetching 20k+ more than the estim

>>>Facebook is advertisers dream with its extremely targeted advertising system

I thought Facebook and other sites like it were still losing money hand-over-fist. THAT is what caused the last crash - when people realized these companies were not earning any money, and quickly fled the stock, leaving to the Clinton-era downward tumble.

And this time I bet traditional media like magazines & newspapers & online e-zines will also disappear. Some will survive; most will not.

The whole 1900s-era system of making billions from mass media (magazines, radio, tv) is collapsing as the "masses" fragment and go in different directions across the web. Look at TV ratings - a top show in the 70s used to be watched by 40% of America. Now it's downto 7-8% with nets like CW scrapping the bottom at only 1%.

The other ~95% of americans are doing something else.Things are bad. (For them. Good for us.)

And there's a huge discrepancy between the $700-800m revenue with a low few tens of millions margin, and the unofficial "valuation" of Facebook at a high few tens of billions.

I'll be the first to admit I'm crap at economics but in my simple world I use simple math. If the yearly profit you can expect from a business is N, where does the valuation as 20xN come from? What's wort

If the yearly profit you can expect from a business is N, where does the valuation as 20xN come from?

Even I can answer that one. Usually you don't invest in or buy a business for only one year. If you pay 20*N for a company, all you have to do is keep the profits steady for 20 years, and you've gotten your money back. If you don't suck at business (which you and I do), you can increase their profit and make your money back in a lot less than 20 years. If you really are in it as a long-term investment, then you can keep your ownership for 30 years, and most likely have double what you originally paid.

I'll be the first to admit I'm studying a double degree with an honours in economics, a bachelors in finance, and I'm picking up all the courses required to be an accountant (do the CPA).

This article was reporting on 2009's revenue (assuming it means 2009-01-01 to 2009-12-31, and not an FY measure) and given Facebook was started in February 2004 [wikipedia.org], and given this is money in the door, 5 years for ANY start up to be profitable, is quite extrodinary, and more so revenue that high. While you could point to other companies which had similar runs, these are extreme exceptions in this industry.

Tens of millions in the early years of a company, and additionally such high turn over, is an extremely good sign. Depending on the modelling these people are using, a valuation of tens of billions can be rationalized. Whether or not it is.

Please note valuation functions are hardly ever simple ratios, while they might be used as one input, or as estimators of other variables, but a profit ratio is unlikely, as its highly affected by different accounting treatments. People outside the company may use this, but can't use it for comparison, or as a reasonable estimator. You'd be better off with a revenue ratio instead.

A simple world, with simple math, to me is the constant growth model. Given they haven't distributed a dividend, and are high growth, we'd likely use free cash flow (but that's also probably highly subjective and unstable), a high growth (a measure of standard deviation would be simplest), and a cost of capital (given you're valuing the firm, and not the equity, something like WACC).

This is an extremely simplistic model, and yet it's immensely more complicated than yours.

If I were valuing this company, I'd be more interested in how its being run, potential future prospects, and whether it could fit in my portfolio well.

IPO's aren't the only way to go, in this instance if they are profitable, can hold on, and are willing to bare the risk, then why would they sell now? Given they didn't need an extreme amount of cash for investment. The life cycle of a company, which doesn't necessarily reflect tech companies well, but could be handy here, shows a company doing R&D, starting, growing rapidly, and smoothing off to become stable. At present they'd be in the rapid growth phase, and if they can fund it internally, they stand to make a LOT more money in the end.

Facebook 09 estimated revenue is indeed $800 million...yet Goldman Sach's offer could place the total value near $50bn. That's laughable compared to Groupon, who saw profits around $350 million, yet were only offered $6bn. If Facebook really is worth $50bn (it's not) then Groupon was right to reject the offer. Hell, that $800 million is only revenue. I'm sure it's probably not by very much, but their income is going to be less.
The smart investor won't dump money into a company so overpriced as Facebook when you look at the money they can get. Besides, how long will it be until Facebook is unseated? 5, 10, 15 years?

Valuations are often EXTREMELY sensitive to the measure of expected growth. As such, if Facebook had an high estimated growth, where as Groupon (which I've never heard of) had a low estimated growth, then this would dramatically change their valuations, given they're similar companies with similar costs of equity/capital.

At the moment Google has a market capitalization of 198.58b, and while Google has an easier monetizing job (I think) than Facebook, and a longer history, we should notice that Facebook has [google.com.au]

>The whole 1900s-era system of making billions from mass media (magazines, radio, tv) is collapsing as the "masses" fragment and go in different directions across the web. Look at TV ratings - a top show in the 70s used to be watched by 40% of America. Now it's downto 7-8% with nets like CW scrapping the bottom at only 1%.

As far as I can tell, the Internet found its funding model. Television. Tons of empty, pointless, inoffensive and bland "content", paid for by the real boss - advertising of worthless products. Millions of sites stand up for no purpose other than for the walls to hold up ads.

Apple is worth how many times their yearly profit? Thirty-something? Meaning if I buy a share I will statistically start making a profit when I'm 75.
For Facebook it will probably be 156. Don't get me wrong, Facebook will in time become a huge money-machine. But the first investers will be one-cell brained "Facebook is big: must buy" kind of people. The more I learn to know bankers, the more I despise them. We are warming up for the next round of "let's kill people savings for fun".

That's because you're under the illusion that making money in the stock market involves the company you're investing in doing well. It's quite possible to make boatloads of money on stocks for companies with no futures.

With growth companies like Facebook and even Apple, you make money by buying stock and selling it for more. Buy Facebook stock on day one and you are going to make money -- guaranteed. How much will depend on how good you are at figuring out what the curve is going to be like and when th

That's because you're under the illusion that making money in the stock market involves the company you're investing in doing well. It's quite possible to make boatloads of money on stocks for companies with no futures.

Ding Ding Ding... You are absolutely correct.

This is what is wrong with the stock market. It's no longer about investing in ideas and products people want. It's now about gaming people in a large game of casino chicken.

"Ride the housing ponzi scheme until it blows. What's that? You pulled out when the number didn't make sense anymore... too bad... you lost out on more sucker money that your less sensible competitors banked."

It takes all of five seconds: Apple [google.com]'s P/E ratio has been 18-20 for a while now. This morning it's 19.57. It's stock price has risen a lot in the last few years, but it has also been making and selling products like mad, and making huge amounts of profit (not just revenue) in the process.

So, in short, there's a wide range of P/E ratios among viable (and profitable) companies. Apple's P/E puts it a bit on the high end, but not wildly so. It is relatively cheap compared to, say, the P/E of the entire S&P 500 [multpl.com]. P/E is just one contributor that guides whether to buy or sell a stock.

Where you might be able to make an argument is that most of the established companies, particularly those with P/Es at or below AAPL's, pay out dividends, and that's one main way investors make money off them. The yield is typically 1-2% per year, so you'd still be waiting decades to earn back an investment through dividends alone.

Apple doesn't pay a dividend, and never has, so the only way to make money on it is to buy low and sell high. If you'd snagged it years ago, before the introduction of the iPhone, for instance, then sold today, you'll have made a boatload, several times what you put in. And that isn't a Ponzi scheme: you owned a share of a profitable company, and that company grew because it generated new business and made money doing so. The potential for making that money by riding a company's growth is a contributor to P/E. Apple has a good track record of breaking into new business and expanding, so its P/E is a bit higher. Ford is unlikely to capture a brand new and rapidly growing market sector, so its P/E is lower.

During the last bubble, 3 digit, and even 4 digit, P/Es were not all that unusual. Most of those companies listed in the parent post, have P/Es around 20. If this is a bubble, it's certainly nothing like the last bubble.

During last dotcom boom companies had no usable plan to get income. However, Facebook is advertisers dream with its extremely targeted advertising system, Zynga has a huge amount of casual players and both advertising and direct payment system and groupon receives good money from the stores. They all have business plan. They might have to work on them a little bit as they're still so new companies, but they definitely have one that work.

Heh heh yup. Petz.com anyone?? Until we start seeing stupid sites that blatantly have no means to gather income showing up in droves again I think we're safe.

The problem is that these valuations are likely not at all realistic for what these companies are making. I would bet that Twitter's revenues are about 1/100 of its market valuation. When you have a company that is that highly priced relative to its revenues, you are basically playing cards at a casino where Goldman Sachs is the one that controls the house.

IANASB (IANA Stock Broker), but I wouldn't touch these companies with a ten foot pole if these are their prices when they hit the market. I know people w

this is like the 4th bubble, with zynga it's about flash games, which have bubbled several times already.the mobile bubble has burst few times already too.

zyngas business plan isn't really long term though, what I mean with that is that it could very comfortably support a staff of say 40-50 people for many years to come, but I don't really see it as something that has the value of 10 billion, quite simply because it wouldn't take 10 billion to prop up another zynga. and if they're profitable and with a posi

Facebook is an advertisers dream. I don't think it could be any more perfect from an advertisers perspective, and I'm sure facebook charges a premium for this kind of consumer data. However, targeted advertising only works when there are targets...what happens when/if facebook goes the way of Myspace and Live Journal (not that LJ was a behemoth like facebook or myspace). It seems like myspace was king for a few years, then tanked and facebook filled the void. I'm not sure what caused myspace's drop

It seems like myspace was king for a few years, then tanked and facebook filled the void. I'm not sure what caused myspace's drop in popularity, but one has to wonder if facebook will see the same thing.

You have the chronology wrong. Myspace was killed by facebook, which is less odious in every way. Myspace wants to exploit you just as much but was never good at it and meanwhile visiting myspace was much like walking into a pool supply retail outlet and suddenly finding yourself in a bounce house full of idiots on methamphetamines. Having a personal page on myspace has all the cachet of shopping at K-Mart.

I have never heard anyone describe a myspace page so perfectly! That is exactly how it should be described, haha. I love it.As for face book, I wasn't sure if it killed myspace or not. All I know is facebook rose up and myspace fell.

I hope this happens for two reasons. One, after everything that's happened in the last 15 years, investors seem primed to look for bubbles wherever they can find them. It's been looking like Treasuries might be the next Big Thing; if that happened, it would accelerate the destruction of the dollar. I'd much rather speculators charge after some stock than my country's currency.

Second, my career really started at the beginning of the last bubble. Maybe a second one bring in some new blood to the industry, especially my step-son (who'll be graduating college in two years and is gonna need a job).

It's not often I agree with a piece in the Guardian, but on this occasion, I think they're onto something. I remember the build-up to the first dotcom bust and a lot of the signs are showing up again. The over-valued floatations of profitless companies are certainly the most obvious of these, but there's a lot more than that out there if you want to look for it. Most worrying for many slashdot readers (though not for me with my nicely non-IT-based job), I'm starting to see the same kind of rush towards IT and computer-science based courses that we saw in the 90s, as the area became seen as a good route to "get rich quick". More competition for jobs and downward pressure on wages on the way.

Actually, I think the Guardian article is, in some ways, a little under-stated. It assumes that we're about to see the start of the bubble, which will begin in earnest with a facebook floatation. I suspect that we're actually a bit further along the cycle than that - already well up on that bubble and waiting for it to burst.

Of course, things won't be absolutely the same this time as they were in the original boom. I think the first boom and bust was characterised by a lack of understanding over what the public actually wanted out of the net. Pretty much everybody who was a significant online presence in those days was a new startup of one form or another and what the bust really did was sort out the wheat from the chaff. The businesses who had hit upon a successful model - like Amazon - came through it just fine. Meanwhile, the likes of Boo.com were exposed as fundamentally unviable - the public weren't remotely interested. It's worth remembering that outside of a small number of finance types and journalists, nobody was actually even looking at the sites of most of the victims last time. I was a heavy net user at the time and I remember seeing these huge IPOs for companies that I hadn't even heard of.

This time around, I think there's a better understanding of what people are interested in. The problem this time isn't the "everything dotcom is exciting" myth that we had last time. Rather, it's the "this is popular, therefore I must be able to make it insanely profitable" myth. The huge valuations are being attached to companies that have already undergone some fairly extensive testing in the court of popular opinion. The problem, however, is that that popular isn't the same as profitable and, I think, the lessons of the last 15 years or so indicate that making them profitable (at least to a degree that justifies the IPO) will likely not prove possible.

Advertising isn't going to do it alone in most of these cases. Sure, advertising is always going to be part of the online economy, but it's been proven time and time again that it isn't a silver bullet - not least because so many people these days just block it. At some point, a lot of these businesses are going to be pushed in the direction of starting to charge for content or services that they have been offering for free. And in a world where people have been used to having these things for free - and where free alternatives will still exist - I don't think that's going to work. Particularly not for social networking enterprises like these, where a lot of their value hinges upon the fact that everybody you know uses them. Some companies may fare better (just as some did in the first bust) - those selling casual games, for example - because they're already extracting revenue from customers.

I just ask a simple question: "Is this company selling a product that people will buy?" If the answer's no, then the company's story probably isn't going to have a happy ending.

Actually, right now is a really good time to get an IT job. It's only after the bust that the competition comes. The bubble companies need people and the companies feeding into the bubble need people to feed their stuff into the bubble. There is large demand for people to help inept CIO's move their servers into the cloud. There will be large demand to move them back right before the bubble bursts.

So freshen your resume's and get some experience if you have it. If you want to get a stable job, advise agains

Wall Streets (and the market in general) function have always been to separate fools from their money. Now we have a bunch of fools who missed out on the first dot-com. They too need to be separated from their money.

The problem with them is that they've become excessively efficient at doing so. Casinos, the other high-profile fool devaluation institutions, at least operate on the comparatively honest principle that you have to go inside and put your money on the table in order to lose it...

Since almost all pension funds around the world are floated on the stock market and in various other derivates, it is not only the fools that will lose their money. Executives appointed by the government to "manage" my money have decided to gamble it away at their leasure and there is absolutely nothing I can do about it.

the rush of the lemmings is all done by rich, well-connected investors this time around, a select few, rather than mom and pop investors like last time around. there has been a trend away from going public in recent years, and sticking with private investors. why deal with the SEC and obsessing over stock market valuation? the stock market is becoming a thing of the past. which is part of a larger story away from the citizen investor and a return to the days of plutocrats and a class structured society, the death of the middle class

so, since dot-com crash 2.0 is all about rich assholes losing their money out of blind greed, i ready my world's tiniest violin

Seriously , if anyone genuinely thinks Facebook or Twitter are worth billions then then they deserve to lose every penny they have. Its not like there arn't recent lessons from history to learn from. Friends Reunited (remember that?) was bought for hundreds of millions by ITV and was sold essentially worthless a few years ago as the Trenderati moved on to the next shiny online bauble.

Is a bubble coming? Well, is a valuation something passably sophisticated -- or is it a version of "Facebook has 500 million users... how much is a user worth?...oh, say, 100 bucks... presto, $50 billion!"

Maybe Google's IPO idea of "e * appropriate power of 10" lends a false air of accuracy -- all those digits! Not pulled out of thin air either.

That's why I'm not on Facebook. As the people who don't have an account decrease the data associated with those people will become more and more valuable until they're willing to pay big money to find out who won't use them and why, then I cash in. OK, it's vastly unlikely to happen, but I'll be gambling on exactly the same thing as the investors, and from a no-lose situation.

I'm surprised that this article didn't cover what is probably the most obvious example of a bubble stock: Netflix. While Netflix is indeed making money, they are not making (nor have the potential to make, due to various reasons) what their stock is currently valued at. But, the problem is people think "oo netflix that's the way of the future, not old fashioned cable providers" and they pump their money into it.

There are many articles about Netflix being a bubble, but here's the first one I found off of Google which summarizes a portion of the problem: bubble [stockinfo.co].

I think the difference between the last.com bubble and this one is that in the last one, companies had no way to make money, whereas in this one they are making some money, just nowhere near the crazy valuations that investors are giving them. The mindset is the same as last time, but the implementation is somewhat different.

Think about it : some companies are evaluated directly over the number of software patents the own. They buy those for sometimes millions. What do you think will happen when the market discovers it has no inherent value ?

Groupon seems to me like one of those ideas we'll look back in retrospect and think, "Why was it worth that much? It was so obvious!"

The idea of landing a big number of first-time customers sounds great until the customers start coming in. From the experiences of business owners I know, Grouponers were, simply put, cheap (not condemning cheap people here, as the times demand it for many.) If the groupon is "get $50 for $25," you better damn be sure most customers will spend the $50 and not a penny more. And if it's a restaurant, they'll tip on the $25.I expect that those customers will not be back; they will move on to the next goupon.They're not looking for a new place to eat; they're looking for a deal.And for consumers, the deals are already being watered down by the typical (one month free at the gym, or free karate classes for a week) that you see everywhere.

As for the businesses themselves,I wonder how many more of these kind of situations we'll see [annarbor.com] - a restaurant using a Groupon-like company hoping to land quick cash in desperation.

Also, from my conversations with people who own businesses, Groupon's sales approach is very aggressive. They put dollar signs in the business owner's eyes. But eventually, they'll get found out. Right now, people don't want to miss out on this since all the cool kids are doing it.

Of course there are businesses who've had great results with Groupon. I just think it's lunacy to think they're worth $15B.

Also, from my conversations with people who own businesses, Groupon's sales approach is very aggressive. They put dollar signs in the business owner's eyes. But eventually, they'll get found out.

And here is the fundamental flaw just like the dot com bubble burst, its a quick get in and get money strategy (the core problem with most major economys today). No long term plan to keep yourself profitable, once companies start to catch on that the deal is not that sweet (which is coming to light already) they will walk. Now this isn't so bad at first but the problem for Groupon is that most business owners talk to each other. Once the seed is planted that your deal is not so great, that seed grows and s

after the last two bubbles venture capitalists paid congress to enact all sorts of laws protecting them from themselves. You have to show the money is going to the business for one, and there's a ton of rules about how capital can be invested. Plus the world economy (US especially) it too top heavy. All the money's held by the top 1%, and like I said, they've been burned twice and don't have any incentive to get burned again...

As long as this time around I can be the one to cash out I'm fine with it. I saw many millionaire developers driving Ferraris and when my time came it went to the birds. Such is life but a new bubble would be sweet for a lot of us. Is anyone really harmed when a fool parts with his money?

Is there any evidence to suggest that Facebook, as a privately held company, isn't already whoring out every bit of their precious "social graph" that someone will pay them enough for? It is definitely the case that public status and next-quarter-driven shareholders can drive a company to evil; but I'm pretty sure that Facebook has already arrived at evil by limo and is currently lounging by the pool and sipping a drink with Zynga...

Microsoft has never returned to it's peak during the previous bubble, but Google and Apple surpassed theirs. And all these faired better than WebVan and VA Linix. And even though faired better than Enron, well sorta.

I'd imagine the social networking bubble will see some strong survivors, like facebook and twittr, along with al the flameouts like Tuenti. Investors will painfully learn that facebook has limits of course.